South African gold on final deathwatch

South Africa's gold industry is on finaldeathwatch, despite claims of massiveexisting below-ground reserves. ChrisHartnady, research

South African gold on final deathwatch as top grade scientist findsresidual gold is more than 90% less than claimed

The apparent bottom line in a paper published in the South AfricanJournal of Science is that South Africa's gold industry is on finaldeathwatch, despite claims of massive existing below-ground reserves.Chris Hartnady, research and technical director of Cape Town earthsciences consultancy Umvoto Africa, has found that South Africa'sWitwatersrand goldfields are around 95% exhausted, and anticipatesthat production rates should fall permanently below 100 tonnes a yearwithin the coming decade.

IGNOMINIOUS END TO GLORY DAYS

Research shows that production rates should fall permanently below 100tonnes a year within the coming decade

Author: Barry SergeantPosted: Monday , 16 Nov 2009JOHANNESBURG -

Gold production from the Witwatersrand, the biggest known gold field inthe world, peaked at around 1,000 tonnes in 1970 and has declined eversince. Hartnady says that while initially (1970-1975) the decline was“quite precipitous”, it has been interrupted by only short periods of slighttrend reversal (1982-1984 and 1992-1993).

Leon Esterhuizen, a London-based specialist analyst at RBC CapitalMarkets, has reacted to the research by saying that “South African goldis dying — this is not new news”, but adds “that it may be dying fasterthan we currently believe is novel”. On the levels of reserves, Hartnadyfinds that the South African “residual gold reserve” after productionthrough 2007 is only 2 948 tonnes, a little less than three times the 1970production figure, and much less than 10% of the officially citedreserve.

The country's gold reserves are less than half of the current UnitedStates Geological Survey (USGS) estimate of 6 000 tonnes, and thecountry is not first, but fourth in world rankings, after Australia (5,000tonnes), Peru (3,500 tonnes) and Russia (3,000 tonnes), Hartnady'sresearch shows. The USGS currently cites South Africa's gold reserves ataround 6,000 tonnes, while SA claims a 36,000 tonnes reserve basefigure (or about 40% of the global total). Hartnady's findings are basedonChamber of Mines figures and mathematical modeling pioneered bythe distinguished American geologist M. King Hubbert.

Esterhuizen comments that “most recent indications from Harmony (evenwith gold bullion at new dollar records over USD 1,100/oz) is that its oldshafts – effectively the Free State gold field – are dying. DRDGold hasgot Blyvooruitzicht on life support and is trying to get permission to keepthe plug in for a little bit longer (with everything around Blyvooruitzichtnow having been shut down), while Pamodzi Gold's demise and Simmer &Jack's failure at Buffelsfontein just proves the point — all of this, atrecord gold prices in rand terms”.

Analysts have also expressed surprise, if not amazement, about recentcomments from AngloGold Ashanti CEO Mark Cutifani to the effect thatits South African operations will be restructured. How is it, analysts ask,that “the highest margin operating gold assets in South Africa are . . .being re-structured ?”

A growing number of skeptics are also asking whether Gold Fields'sdevelopingSouth Deep operation – which it bought in 2007 for USD 3bn –will truly ever be able to make money. It is already evident that it willprobably never deliver a real return on the capital that it took to bring itto life, says Esterhuizen. He also notes particular current promises byboth Gold Fields and Harmony of growth from the South African baseover the next three years.

Hartnady's prognosis is pretty grim: “Given the energy andenvironmental problems associated with ongoing groundwater control,water-resource contamination by acid mine drainage, and the possibilityof widespread mercury and other factors of pollution caused by illicitunderground ore-processing by the zama-zamas (illegal miners), theglory days of South African gold mining appear to have arrived finally atan ignominious end.

“There can be no further illusions, maintained by unrealistic expectationof a future fortune, about the seriousness of the present situation. Intheir various possible forms, the slow-onset disasters of environmentaldegradation associated with the death-throes of a formerly illustriousindustry now pose a serious threat, and may ultimately cost far morethan the net present value of some 3,000 tonnes of gold”.Esterhuizen mentions a number of other challenges faced by SouthAfrican gold diggers: royalties (a new thing), zooming electricity charges,BEE (black economic empowerment) burdens, safety shutdowns,“massive security costs”, and ever-present currency exchange control.In these areas, Esterhuizen argues that “government may achieve a‘small' miracle or, more likely, simply hasten the end”.

Esterhuizen says that “a small opportunity may be the possible strongerfuture uranium market — effectively reducing gold costs by obtainingrevenue from by-products”. This is already happening at a number ofgold mines where uranium is also produced. Certain closed shafts knownto hold good quantities of uranium are also being investigated forpossible recommissioning.